Earnings Call Transcript - CVEO Q3 2025

Operator, Operator

Greetings, and welcome to the Civeo Corporation Third Quarter 2025 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead.

Regan Nielsen, Vice President, Corporate Development and Investor Relations

Thank you, and welcome to Civeo's Third Quarter 2025 Earnings Conference Call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Collin Gerry, Civeo's Chief Financial Officer and Treasurer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain anything other than historical information, please note that we're relying on the safe harbor protections afforded by federal law. These forward-looking remarks speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these forward-looking statements, except as required by law. Any such remarks should be read in the context of the many factors that affect our business, including risks and uncertainties disclosed in our Forms 10-K, 10-Q and other SEC filings. I'll now turn the call over to Bradley.

Bradley Dodson, President and CEO

Thank you, Regan, and thank you all for joining us today on our third quarter 2025 earnings call. I'll start with some key takeaways for the quarter and then summarize our consolidated and regional performance. After that, Collin will provide further financial and segment level details. And I'll conclude our prepared remarks with our updated 2025 guidance and preliminary outlook for 2026 by region. There are three key takeaways from the third quarter results: one, continued significant progress on the current share repurchase authorization. Two, our Australia business continues to grow both in our owned villages and in our integrated services business; and three, the Canadian cost-cutting measures bear fruit, and our focus now turns to putting our mobile camp assets to work. I'll start with the significant progress we've made toward completing our expanded share repurchase authorization. During the quarter, Civeo repurchased approximately 1 million common shares, bringing our year-to-date return of capital to shareholders to $52 million. With this progress, we've completed 69% of our new buyback authorization as of September 30, 2025. We remain confident that share repurchases are a compelling use of capital, especially during broad equity market volatility. Given the accelerated buybacks and our recently completed acquisition, our net leverage ratio as of September 30, 2025, was 2.1x, and we're comfortable with that. Our accelerated repurchase activity is consistent with our prior commitment to completing the current authorization as soon as practical. As previously stated, we intend to use no less than 100% of annual free cash flow to achieve this goal. We've obviously spent more than that, and we'll continue to spend more than that in our 2025 free cash flow buybacks this year. Turning now to the operational results for the quarter. Overall, the third quarter results were consistent with our expectations and reflected our outlook conveyed on our prior earnings call. In Australia, we remain focused on growing our integrated services business and capitalizing on our newly acquired villages in the Bowen Basin. Revenues in the region increased 7% year-over-year and adjusted EBITDA grew 19%. Notably, we completed the integration of our recently acquired villages in the Bowen Basin. So the third quarter of 2025 was the first full quarter financial impact from these four villages. Looking ahead, based on current customer discussions, we expect Australian occupancy in our owned villages to soften modestly in the fourth quarter due to typical fourth quarter seasonality with the holidays and softness in outlook for met coal pricing and demand exhibited by recently announced customer headcount reductions. Despite these near-term headwinds, we are confident in our Australian business. We have a strong contract position in our owned villages that will support good continued cash flow. In our integrated services business, we remain on track to reach our goal of AUD 500 million of revenue by 2027. And we continue to seek opportunities to expand into non-resource natural resource markets. While conditions in Canada remain challenged given oil prices and ongoing macroeconomic headwinds, our ability to drive year-over-year gross profit expansion in the face of continued pressures is a testament to the success of our cost reduction strategy implemented to date. We have taken decisive action to position our Canadian business to be more profitable in response to changes in oil sands customer sentiment and operational strategies, and we are pleased with the benefits they are seeing as a result. Initial actions have included an overall headcount reduction of approximately 25%, optimizing certain underutilized lodges to reduce carrying costs, and streamlining field-level operations to align with current demand levels. In the third quarter, this work allowed us to bring direct field level costs in Canada down 29% year-over-year, reduced indirect operating overhead costs by 23%, and as a result, increased gross profit by 35%. From here, for our Canadian business, our key focus is to capture the potential increase in demand for mobile camp assets in support of various Canadian infrastructure projects. Overall, we are executing on our strategic priorities in each region. Our Australian business continues to do well with year-over-year growth in both the owned villages and integrated services. And while the Canadian headwinds remain, we know this market well, and we're working with our strategic partners to understand how we can continue to support them as they capitalize on evolving opportunities in the country. We are taking decisive action to apply our resources where our customers need them in the region. And as a result, we're positioning Civeo for long-term resilience and cash generation. With that, I'll turn it over to Collin.

Collin Gerry, Chief Financial Officer

Thank you, Bradley, and thank you all for joining us this morning. Turning to the income statement. Today, we reported total revenues in the third quarter of $170.5 million with a net loss of $0.5 million or $0.04 per diluted share. During the third quarter, Civeo generated adjusted EBITDA of $28.8 million and operating cash flow of $13.8 million. The year-over-year increase in adjusted EBITDA was primarily driven by the benefits of cost cutting in Canada, contributions from the Australian acquisition completed in May of 2025, and higher occupancy in the legacy Australian-owned business. Third quarter revenues from our Australian segment were $124.5 million, up 7% from $116.6 million in the third quarter of 2024. Adjusted EBITDA was $26.7 million, up 19% from the $22.5 million in the third quarter of 2025. The increase in revenues and adjusted EBITDA was primarily driven by the recently completed acquisition of four owned villages. The year-over-year increase was offset by the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by $3 million and $0.6 million, respectively. Australian-owned village billed rooms in the quarter were 763,000 rooms, up 18% from the third quarter of 2024, primarily due to our recently completed acquisition. Our daily room rate for our Australian owned villages in U.S. dollars was $77, which decreased from $79 in the third quarter of 2024, primarily due to the weakening of the Australian dollar. Turning to Canada, we recorded revenues of $46 million compared to revenues of $57.7 million in the third quarter of 2024. Adjusted EBITDA for the segment was $8 million, an increase from $3.4 million in the third quarter of 2024. As noted, the year-over-year adjusted EBITDA increase was primarily driven by the implementation of cost reduction measures offsetting lower billed rooms and revenues. During the third quarter, billed rooms in our Canadian lodges totaled 383,000, which was down from 484,000 in the third quarter of 2024. Our daily room rate for the Canadian segment in U.S. dollars was $100, flat with the third quarter of 2024. Turning to our capital structure. Civeo's net debt as of September 30, 2025, was $176 million, a $22 million increase since the June quarter of 2025, attributable to the significant progress made on our share repurchase authorization in the quarter. Our net leverage ratio for the quarter was 2.1x as of September 30, 2025, with total liquidity of approximately $70 million. We have allocated $48.7 million to share repurchases year-to-date. We remain comfortable maintaining a net leverage ratio in the 2x range on a go-forward basis. As we look at capital allocation, on a consolidated basis, capital expenditures for the third quarter of 2025 were $5.6 million, down from $7.5 million during the third quarter of 2024. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. As noted, during the third quarter of 2025, we repurchased approximately 1 million shares through our share repurchase program. We continue to believe that repurchasing Civeo shares presents a value-enhancing opportunity. We've made great progress on our current share repurchase authorization, and we will continue to opportunistically execute our plan moving forward. With that, I'll turn it back over to Bradley.

Bradley Dodson, President and CEO

Thank you, Collin. I would now like to turn to a discussion of our full year 2025 guidance on a consolidated basis, including the underlying macro and regional assumption. We are tightening our full year 2025 revenue and adjusted EBITDA guidance. Updated 2025 revenue guidance is $640 million to $655 million and adjusted EBITDA guidance of $86 million to $91 million. I'll now provide the regional outlooks and corresponding underlying assumptions. In Australia, occupancy in our owned villages remains strong. Three of our Bowen Basin villages continue to be effectively operating at full capacity, and we're seeing strong occupancy across the remainder of our owned village portfolio. Even when accounting for the expected impacts of weakening met coal prices and recent customer layoff announcements, we expect healthy, albeit modestly softer occupancy in our owned villages in the fourth quarter. As it relates to our Integrated Services business, we are encouraged by the strong margin performance we have delivered throughout the year, and we will continue to focus on cost-effective execution. We expect to continue building on our strong momentum for the remainder of 2025 and beyond as we work towards our goal of achieving AUD 500 million of integrated services revenue by 2027. In Canada, we continue to navigate the difficult operating environment in the oil sands region, which is exacerbated by lower oil prices and broader macroeconomic uncertainty. As a result, expected billed rooms in the fourth quarter of the year is expected to be relatively in line with third quarter. That said, we remain encouraged by the results of our Canadian cost-cutting initiatives to date and expect to continue to benefit from these going forward. I will now provide a preliminary outlook for 2026. In Australia, our outlook for 2026 is relatively similar to what we experienced in 2025 with potential for modest softness in our owned village occupancy due to commodity price volatility and customer layoff announcements. That said, we expect that any softness in our legacy owned villages will be largely offset by the full year impact of our May 2025 Village acquisition. In our integrated services business, we expect to continue advancing towards our $500 million revenue goal for 2027 through our strong sales pipeline. In Canada, we expect the aforementioned headwinds in the oil sands region to continue to negatively impact lodge occupancy. However, at this point, it feels like occupancy is stabilizing such that we expect next year's lodge occupancy to be flat to slightly up in 2026 when compared to the full year of 2025. In the near term, our focus is on mobile camp deployment. We are optimistic that we will see increased utilization of our mobile camps in North America towards the end of 2026. Our optimism is underpinned by strong bidding activity tied to continued public support at both the federal and provincial levels for infrastructure projects in Canada and increased demand in the U.S. for a wide range of infrastructure projects. Civeo's attractive asset base, demonstrated capabilities and strong relationships position us well to capture these growth opportunities as final investment decisions are made by our customers. While several of these projects we are bidding on have estimated project approvals scheduled for 2026, we would not expect to see a material financial impact from these projects until 2027. In the immediate term, our focus remains squarely on managing what we can control, executing on our cost reduction initiatives, enhancing operational efficiencies, and aligning our resource base with demand. We are confident that we have the right plan in place to continue mitigating these headwinds while orienting the business to capitalize on growth opportunities to drive increased cash flow from our Canadian operations. Regarding capital allocation, we will continue to opportunistically repurchase shares and use no less than 100% of our annual free cash flow to complete our current share repurchase authorization. After this authorization is complete, we intend to use no less than 75% of annual free cash flow to buy back shares. We remain comfortable with our net leverage ratio in the 2x range moving forward. With that, we're happy to take questions.

Operator, Operator

And our first question will come from Stephen Gengaro with Stifel.

Stephen Gengaro, Analyst

So Bradley, you might get mad at me for asking this. But when you package the guidance you gave for '26 together, it feels like it all sort of equates to something that's kind of flattish year-over-year. I mean, is that in the ballpark of what you're seeing?

Bradley Dodson, President and CEO

No, I believe it will be higher year-over-year. We are still working through the budgeting process, which remains dynamic in both markets. In Australia, some customers have announced headcount reductions, affecting our outlook for occupancy in our owned villages. However, we maintain a strong contract position. While we are observing some softness in occupancy in our owned villages, as I have previously communicated to investors, occupancy in our Australian-owned villages is slightly softer to flat year-over-year, including the contributions from the four villages we acquired in May. We anticipate integrated services will experience top line growth from 2025 to 2026 and continue to deliver strong margins. In Canada, I mentioned that lodge occupancy appears to be stabilizing but remains dynamic at this time. We plan to provide an update in February during the fourth quarter call. Currently, I expect Canadian lodge occupancy to be flat to up from 2025 to 2026. A critical factor will be whether some infrastructure projects—such as pipelines, LNG facilities, and highline transmission projects in the U.S.—receive approval from our customers and if we secure the work, which could allow us to utilize our mobile camps that are currently not contributing to the 2025 results. Overall, I expect 2026 to see an increase, though I am still working to determine the exact amount.

Stephen Gengaro, Analyst

Great. The other question I had, you touched on this a little bit. When you talk about the mobile camp assets and the ability to redeploy, are you talking about Canada and the U.S.? And are you looking at things in the U.S. that are connected to some of these newer energy opportunities around lithium mining and maybe data center related? Are any of those things in your opportunity set?

Bradley Dodson, President and CEO

Yes, Stephen, thank you for highlighting that. I would say this is the busiest I can remember recently in terms of our bidding activity in North America. We have about 2,500 mobile camp rooms that are ready to be deployed and another roughly 1,000 currently attached to our oil sands lodges that we could redeploy anywhere in North America. In Canada, it's mainly related to LNG, pipelines, and infrastructure in Western Canada, with plans to deploy them in Eastern Canada as well. We can also deploy them in the U.S., and our team is actively pursuing opportunities like data centers.

Stephen Gengaro, Analyst

Great. And just one final one. When you think about capital allocation longer term, right, and you've done a great job returning a lot of capital. Is there a preference for incremental expansion/acquisitions versus buybacks? Or is it just going to be kind of on a project-by-project basis?

Bradley Dodson, President and CEO

Well, we've committed to completing the current authorization to buy back 20% of the shares, which is about 2.6 million shares as soon as practicable and using no less than 100% of free cash flow to do so. That being said, if there are opportunities that are economic that are supported by customer contracts and if there are attractive bolt-on acquisitions, we'll continue to look at that, obviously continuing to weigh the fact that we want to stay around 2x leveraged or no more than that. And so right now, there are opportunities to deploy incremental capital for growth purposes, but nothing that will overextend the balance sheet.

Operator, Operator

And our next question comes from Steve Ferazani with Sidoti & Company.

Steve Ferazani, Analyst

I appreciate the details you provided. I wanted to ask about the growth opportunities in Australia since you mentioned the decline in met coal prices. I believe you pointed out potential chances to expand integrated services beyond the natural resources sector. Can you elaborate on the opportunities and challenges in that market to reach the $500 million target? It appears to be more challenging now than it did a year ago. Does this require mergers and acquisitions, or are there alternative methods to achieve it outside of the traditional met coal or iron ore markets?

Bradley Dodson, President and CEO

I want to clarify that I don't think it's more challenging than before. I'm confident in our ability to reach the $500 million target by 2027. In fact, I feel more optimistic about it now than I did a year ago. The team has excelled at securing new projects, gaining market share, and expanding our customer base, particularly in Australia and our integrated services. When we acquired the Action Catering business, they were only in Western Australia. Now, we've grown into South Australia and, most recently, Queensland, which is where most of our own villages are located. This expansion allows us to utilize our infrastructure effectively and serve our existing customers in Queensland better. I believe that with the sales opportunities we have, we can reach the $500 million goal in the resources market by 2027. I think it can be achieved organically, although acquisitions could potentially enhance that process. However, it’s becoming tougher to secure additional resources projects due to the presence of larger competitors. Our aim is to focus on our core competency, which is providing excellent care for people, ensuring they are safe, well-fed, and well-rested for their work. We are currently exploring other verticals where we can apply this expertise, and we hope to make some progress in the next year to 18 months.

Steve Ferazani, Analyst

Excellent. On the mobile camp side, we can certainly see plenty of opportunities that appear to be out there, particularly in Canada, and I'm sure there's a lot we don't see that you're pursuing. The timing of it is always, I know, really challenging, particularly for the larger projects. Realistically, is this probably more of a 2027, 2028 and beyond story? Or are there real chances in 2026?

Bradley Dodson, President and CEO

It will all depend on our customers getting to positive final investment decisions sooner rather than later. Some of them are still striving to get to a positive FID by year-end 2025. Yes. Do you handicap and say that probably slip into the early '26 or the first half of '26, that's probably pretty reasonable. So it depends on when the projects get approved. Sooner is better, then why I'm confident in our competitive positioning, we still got to win the work thereafter. I think that right now, there will be some contribution from increased mobile camp work in 2026. It's likely second half weighted. And even if you handicap some of the expected timing of project approvals, 2027 looks like a good year. And to your point, beyond that, these are largely construction projects that are expected to take 2 to 4 years to complete, and that would be a good utilization opportunity for our mobile camps.

Steve Ferazani, Analyst

Yes. This appears to be your second consecutive year with a decrease in capital expenditures. Considering the closure of some Canadian lodges and your recent investments, such as enhancing WiFi accessibility, what will capital expenditures look like going forward? Should we expect the same high level of investment this year, aside from securing large project awards?

Bradley Dodson, President and CEO

No. I think it's reasonable to expect that capital expenditures are around USD 25 million on a consolidated basis. To address your point, we made some WiFi upgrades in Australia this year, but there’s still work to be done in that area. There are always one-off projects. The team globally approaches capital deployment pragmatically. We evaluate what is essential, what is beneficial, and what would be nice to have, prioritizing based on maintaining safe operating locations and enhancing guest experiences. So, I believe $25 million is a reliable figure to use annually. This amount typically includes some discretionary projects as well. Any higher expenditures would depend on customer commitments and growth initiatives.

Collin Gerry, Chief Financial Officer

And if I could just supplement on that, what Bradley mentioned the nice to haves. I just want to remind the audience the way that we think about that is today's nice-to-haves are tomorrow's have-to-haves, and they could be a little bit more expensive if you wait. And so that's the balance.

Bradley Dodson, President and CEO

Great point. Yes. That's a very good point.

Steve Ferazani, Analyst

When we think about those mobile camp opportunities, particularly if they're 2 to 4 years, does that require significant CapEx?

Bradley Dodson, President and CEO

Great question. To put some numbers around it. We've got, as I mentioned, 2,500 mobile camp rooms readily deployable, another 1,000 that we can pull off that are currently on our oil sands lodges. So of those roughly 3,500 rooms, our bidding activity, we bid out those fourfold. Now we don't expect to win all of that work, but we're exceedingly busy. Now there are probably half a dozen to a dozen infrastructure projects that we're tracking that could kick off in the next 12 to 18 months. It all depends on how those get sequenced. If they all hit at the exact same time, yes, we'll need some more CapEx. Will it be warranted? Absolutely.

Steve Ferazani, Analyst

I think I would complain about that.

Bradley Dodson, President and CEO

No, I don't think they will. To be clear, if everything is spaced out evenly, it could mean an additional $5 million to $10 million in capital expenditures. If everything happens simultaneously, it could reach $25 million to $30 million. However, I am confident that if everything coincides, people will be more excited about that than concerned about the capital expenditures.

Collin Gerry, Chief Financial Officer

Yes, Steve, if we win a project, there's going to be a de minimis amount of capital, but it's marginal relative to the project. The real capital outlay would be required if we had to start going out and buying new rooms in excess of the 2,500 to 3,500 that Bradley quoted.

Steve Ferazani, Analyst

Which would be a great problem.

Operator, Operator

And we'll go next to Dave Storms with Stonegate.

David Storms, Analyst

Just thinking through your goal of $500 million in integrated services in Australia. How do you feel about your current staffing levels there? Just trying to think through what might be the bottlenecks as you march towards that goal.

Bradley Dodson, President and CEO

Good question. Staffing in Australia remains a challenge. It is better than it was a couple of years ago, thanks to the overall recovery from COVID and the efforts of our people and culture team in recruitment. The main issue for us lies with chefs, but it extends to labor overall. We have been working for nearly five years to recruit international chefs to come to Australia, and we are making some progress. It continues to be a challenge, but it's not necessarily getting worse, even though we haven't returned to pre-COVID levels. We’ve made some adjustments to our rosters and travel allowances, which have helped attract and retain staff, but it is still a priority for our team. However, I believe that if we secure new work, we will be able to find the necessary personnel.

David Storms, Analyst

Understood. That's great color. Thinking about the cost cutting in Canada, specifically the field level streamlining, how much of this could maybe be applicable to Australia? Could we see a similar margin expansion there if some of that was more plug and play? Or is that more specific to Canada, the cost cutting?

Bradley Dodson, President and CEO

It's primarily focused on Canada. We made significant progress by closing a few locations, which has reduced carrying costs there. We have also streamlined our operating level headcounts. This initiative began about a year ago. In the second half of last year, we observed a decline in occupancy in Canada as customers sought to reduce maintenance work and cut down on headcount, favoring localized staffing over fly-in, fly-out arrangements. As I mentioned earlier, it seems stabilization is occurring at this point. Currently, we anticipate Canadian lodge occupancy will remain steady or even increase from 2025 to 2026. In contrast, Australia has a different cost structure due to the varying climate, especially between Northern Canada and Australia, particularly Queensland, which creates distinct operational expenses. We are always exploring efficiencies in our operations, and this process is ongoing rather than a one-time effort. However, I believe the measures we’ve implemented in Canada are not directly applicable to what we could achieve in Australia.

David Storms, Analyst

Understood. That makes perfect sense. And that does kind of just bring me to my last question here. With you mentioning in your prepared remarks that it feels like Canada is stabilizing, how much more cost-cutting initiatives should we expect there? And is there, I guess, a potential for any of that margin to be given back as you maybe start getting a little busier in Canada?

Bradley Dodson, President and CEO

Being connected to commodities and experiencing cyclical trends, cost cutting is deeply ingrained in our team. We need to make cost-cutting decisions. We acted swiftly in the latter half of last year and the beginning of this year, which reflected positively in our third quarter results. We will keep refining our cost structure, but the simpler measures have already been implemented. There are certainly other initiatives that require more effort to execute, and we are focused on those. I hope we can complete them by the end of the year or close to it. However, we are facing a new reality in the Canadian oil sands regarding activity, spending, and occupancy levels, and we are adapting to that. We do not anticipate this shift to be temporary. Customers are changing their operations and are being rewarded by investors for minimizing costs and lowering capital expenditures, which ultimately leads to fewer personnel and reduced occupancy opportunities in our lodges.

Collin Gerry, Chief Financial Officer

Over the past year, or perhaps nine months, our primary focus has definitely been on reducing costs. As mentioned by Bradley, we’re not finished with that, but we are now shifting our attention. The most effective way to enhance our Canadian business is to increase revenue going forward. We see opportunities ahead and are encouraging our team to concentrate on the bid pipeline we have established while we continue to implement our cost-cutting measures.

Operator, Operator

And this now concludes our question-and-answer session. I would like to turn the floor back over to Bradley Dodson for closing comments.

Bradley Dodson, President and CEO

Thank you, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo, and we look forward to speaking with you on our fourth quarter earnings call, which we expect to happen at the end of February.

Operator, Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.